Integrating Sustainability Strategies: Green Building Solutions Green Tenant Leases March 10, 2010 Louise C. Adamson LEED®-AP ID&C Partner San Francisco © 2010 Louise C. Adamson

2 Corporate Perspectives on Sustainability  A 2008 global survey of over 400 building occupiers prepared by Jones Lang LaSalle and CoreNet shows that 90% of corporate occupiers surveyed consider sustainability a near- term critical business issue  Most major corporations have now developed public sustainability policy statements  Opportunities: lower rents; landlord concessions  Sustainability has become part of the corporate vernacular and remains a high priority  2009 CoreNet study shows 42% of real estate execs prepared to pay a premium (up to 5%) to lease green space; 53% willing to pay premium to retrofit owned property Global Trends in Sustainable Real Estate: An Occupier’s Perspective. Jones Lang LaSalle/CoreNet, Feb 2008; BOMA Kingsley Quarterly, 2007; 2009 State of the Corporate Real Estate Industry Report. CoreNet Global, Mar 2009

3 When will sustainability become a critical business issue?

4 How important are each of the following to your organization?

5 Implementation  For many corporations, sustainability is an area far removed from primary business  Many corporations implementing a variety of environmental initiatives – energy saving, waste management, alternative transportation – in an effort to meet announced corporate sustainability goals  Green leases provide corporations that are tenants with a valuable opportunity to implement sustainability goals and to communicate that achievement to the market through LEED certification

6 What does “green” mean? Green building is a collection of land use, building design, construction, operations, and maintenance strategies that are designed to reduce energy consumption, promote occupant health, and protect the environment

7 What is the LEED ® Green Building Rating System™? LEED is an acronym for “Leadership in Energy And Environmental Design”. The LEED Green Building Rating System is promulgated by the US Green Building Council LEED is designed to guide the development of high performance sustainable building projects; “points” are accrued for implementation of efficiency and design measures; certification awarded based on number of points earned The mission of LEED is to encourage the global adoption of sustainable green building and development practices LEED has become the established industry benchmark for the certification of sustainable building projects

8 Environmental impacts of buildings  U.S. Building Impacts U.S. Dept. Energy 2008

9 Green Buildings  USE 24% to 50% less energy  EMIT 33% to 39% less carbon dioxide into the atmosphere  USE 40% less water  SEND 70% less solid waste to landfills and incinerators U.S. Green Building Council

10 USGBC Rating System Portfolio 'USGBC' and related logo is a trademark owned by the U.S. Green Building Council LEED Rating System Portfolio LEED for New Construction & Major Renovations LEED for Existing Buildings Operations & Mgmt LEED for Interior Design & Construction LEED for Core & Shell LEED for Retail: New Construction LEED for Neighborhood Development LEED for Schools LEED for Homes LEED for Healthcare

11 LEED ID&C certification is awarded at the following levels:  CERTIFIED40-49 points  SILVER50-59 points  GOLD points  PLATINUM80 points and above  7 “must-have” prerequisites. Balance of credits selected on “pick and choose” basis across various categories 'USGBC' and related logo is a trademark owned by the U.S. Green Building Council

12 LEED for Interior Design and Construction  Certification for the tenant build-out is covered by LEED for Green Interior Design and Construction LEED-ID&C (formerly LEED-CI) which is premises-based NOT building-based  Recognizes that tenant will typically have limited ability to control or leverage landlord behavior and requires the implementation of sustainable practices within the premises ONLY  LEED-ID&C is all about the art of the do-able!

13 LEED-ID&C LEED-ID&C addresses performance in the following categories:  Sustainable Sites  Water Efficiency  Energy & Atmosphere  Materials & Resources  Indoor Environmental Quality  Innovation in Design  Regional Priority

14 Opportunity and incentive to implement environmentally sustainable practices Improved bottom line; increased occupant well-being and productivity; reduced absenteeism; qualify for growing array of state/local initiatives Why pursue LEED-ID&C certification or locate in a LEED-certified building? Valuable opportunity to communicate commitment to responsible environmental stewardship to the marketplace, employees, community and shareholders

15

16 Client Case Study  Assignment was to “green” standard multi-tenant lease form for Fortune 100 company with 22 million sq. ft portfolio (56% owned, 44% leased)  No “green” tenant leases existed  Not simply a matter of plugging in a few green provisions into the lease form (“green washing”)  Requires identification and communication of sustainability goals from very start of building selection and lease negotiation processes

17 Client Case Study Client Case Study (continued)  Input received from all members of the client transaction team  Developed a unique green lease program that integrates sustainability in a holistic way starting with site selection and continuing through RFP, LOI and lease  Differentiator: Lease tracks LEED-ID&C requirements so that lease itself facilitates certification of the premises on a stand- alone basis (regardless of typically uncertified status of building)  Client has adopted new green lease forms and pursuit of LEED certification is now default assumption for new leases

18 Elements of Green Leasing Program  Development of sustainability goals  Communication of goals to team  Site selection guidelines (informed by LEED reqs)  Request for Proposal (include LEED questionnaire)  Letter of Intent (include a Sustainability Standards exhibit)  Lease (incorporate green lease terms that track LEED-ID&C requirements

19 Site Selection RFP LOI LeaseTraditional Green Leasing Program

20 Site Selection RFP LOI LeaseTraditional Green Leasing Program Site Selection RFP LOI Lease With Plug-in Green Terms “Green Washing”

21 Site Selection RFP LOI LeaseTraditional with LEED parameters RFP with LEED questionnaire Letter of Intent Core green business terms Green Lease Incorporates green policy tracks LEED-ID&C Establish sustainability goals Communicate goals to team Green Lease Green Leasing Program

22 Establish sustainability goals  Sustainability objectives identified; green policy statement developed  Typically includes energy and water use, waste minimization, materials recycling, alternative transportation

23 Communication of Sustainability Goals to Team Communication of sustainability objectives to ALL parties participating in the leasing process is key – includes brokers, landlords, architects, contractors and attorneys, many of whom may have a limited understanding of green building practices

24 Site Selection Checklist  Site selection checklist – sustainability criteria  LEED encourages selection of premises located within buildings that  implement sustainability best practices (e.g. LEED certified building or building that incorporates sustainable features)  are located in areas of maximum density in established urban communities with access to public transport

25 RFP Includes LEED Questionnaire  “Green” RFP sets out core sustainability requirements AND solicits green information by including a separate LEED questionnaire  Responses to LEED questionnaire allow tenant to compare the green characteristics of buildings and assess potential for certification in a given market  Don’t want to “spook” potential landlords but important to realistically assess sustainability potential of particular building, including potential for LEED or other sustainability certification, early in process

26 Letter of Intent  Sustainability Standards Checklist included as an exhibit to LOI  Provides a comprehensive summary of LEED and other sustainability standards which can be tailored to each transaction  Not all standards included in checklist will be applicable to every transaction  Negotiated sustainability standards are incorporated into LOI exhibit which is then attached to Lease

27 Letter of Intent Letter of Intent (continued)  If seeking LEED certification, Sustainability Standards should include LEED prerequisites together with additional optional points needed to achieve desired level of certification  Sustainability Standards Checklist annotated to show which are the “must have” LEED prerequisites and which provide optional credits  Other certification standards (EnergyStar, etc.)

28 Green Lease Program Elements  Sustainable Sites checklist  RFP (include sustainability questionnaire)  LOI (include Sustainability Standards checklist)  Lease (include Sustainability Standards exhibit)  Guide to Green Lease Forms – summary of forms and how they work; explanation of specific green provisions  Training/workshop

29 Structure to be Flexible and Adaptable  Green lease may not be feasible for every transaction  Highlight green provisions  Highlight green provisions “OPTIONAL (Sustainability Initiative”)  Structure forms to work on a stand-alone basis in both “green” and “non-green” modes  Green provisions and exhibits can be used as a drafting guide when using landlord forms

30 Green Lease is Low Hanging Fruit  Opportunity to implement sustainability goals  Facilitates LEED certification for premises (tenant build-out) by tracking and incorporating LEED-ID&C credits  Certification for the premises can be obtained regardless of the typically uncertified status of the building

31  Certification is highly achievable because based on implementation of measures within premises only  Certification is inexpensive  basic/silver level certification highly achievable at little or no cost  significant cost savings and other personnel performance and well-being benefits over lease term

32 Green leases provide innovative, highly achievable, and valuable opportunity to:  implement sustainable practices  meet sustainability goals  communicate achievement to the market through LEED certification Take Aways

33 Take Aways Effective green lease program should be:  holistic and comprehensive – documents incorporate green concepts throughout the lease negotiation process  flexible – can be used in green and non-green mode  adaptable – can be used as drafting guide to revise and supplement existing forms when landlord forms must be used

34 Green Lease Resources  Green Office Guide: Integrating LEED into Your Leasing Process – US Green Building Council (USGBC), 2009 (tenant oriented)  Comprehensive manual designed to assist tenants green the leasing process  Addresses site selection, negotiations, lease language, build- out, ongoing operations  Lease Guide: Guide to Writing a Commercial Real Estate Lease – Building Owners and Managers Assoc. Int. (BOMA), 2008 (landlord oriented)  Form of commercial lease agreement that includes green provisions

35 Louise C. Adamson LEED ® -AP ID&C Partner San Francisco